Consumer Groups Call on Fed to Extend Reg E to Payroll Cards

The rapid growth of the market for stored-value cards issued to employees in lieu of paychecks has prompted a wide array of consumer and labor groups to petition the Federal Reserve Board to extend to payroll cards the consumer protections of the Electronic Funds Transfer Act. In a letter sent today to Fed Chairman Alan Greenspan, some 26 groups, including Consumers Union, the Consumer Federation of America, the United Auto Workers, and U.S. PIRG, urge the Fed to issue an interpretation that would clearly state payroll cards are covered by the Fed's Regulation E, which interprets the EFTA and spells out rules to implement it. The most critical protections offered by Reg E that do not clearly apply to prepaid cards such as payroll cards, the groups say, concern liability limits and re-credits for consumers in the case cards are lost or stolen. Reg E limits consumer loss in such cases to $50 if cardholders report the loss of the card to their banks within two business days. It also requires banks to recredit funds taken from consumer accounts by theft or mistake within 10 business days, unless the bank can show there was no theft or mistake. Because payroll cards, unlike bank-issued credit and debit cards, are not linked to consumer bank accounts, Reg E does not clearly protect workers who receive them, the groups contend. These workers are particularly vulnerable because they are often breadwinners for lower-income families who “simply do not have the assets to cushion even a temporary interruption of funds,” says Gail Hillebrand, a senior attorney with Consumers Union's West Coast office, in a statement released with the letter to Greenspan. “The Federal Reserve Board must act now.” The letter goes on to suggest that another provision of Reg E, which requires issuers to send periodic statements to accountholders, could be waived for a year if it means the consumer-protection provisions could take effect sooner. The periodic-statement requirement has long been considered one of Reg E's most costly rules to implement. Payroll cards are one of the most popular and fastest-growing forms of prepaid debit. They offer companies an electronic system to pay workers who don't have bank accounts and who would otherwise incur substantial fees to cash paychecks at places such as currency exchanges. The statement today from the advocacy groups cites a recent report from Mercator Advisory Group, Shrewsbury, Mass., that indicates U.S. companies are paying out $15 billion yearly in wages, incentives, and commissions on the cards. The potential market, the report says, is $109.8 billion.